He agreed to the substantial tax deficiencies involved but before it could be collected, he converted his assets to cash and transmitted over $500,000 to a Swiss bank. Faced with a 5-year sentence for concealing assets to evade payment of his taxes, the automobile dealer arranged with the court to go to Switzerland and retrieve the money. He returned with most of it and turned it over to the court. TRANSACTIONS IN SECURITIES A taxpayer and his son opened an account in an assumed name with a bank in Switzerland. Using a subsidiary of the Swiss bank in New York as a conduit, they bought and sold securities in the name of the Swiss bank, omitting resulting capital gain from their tax returns. Unreported income of over $1 million accrued to their credit with the Swiss bank. In another case a taxpayer whose returns were under examination voluntarily submitted information relative to a secret foreign bank account in her name, the income from which had not been reported. She disclosed that her former husband also had such an account. The wife's account showed deposits in excess of $100,000 as well as unreported dividend and interest income. Mr. Chairman, with respect to the enforcement problems indicated by the above mentioned examples-and we could give many more we are seeking to determine whether reasonable recordkeeping and reporting requirements which would not interfere with the free flow of commerce and which would not place excessive burdens on financial institutions and their customers can be developed so as to give the IRS tools to deal with these problems. This will be a subject for study by the Treasury task force described by Assistant Secretary Rossides. Regarding the proposed requirement that domestic banks maintain specific records, I want to emphasize that most banks cooperate with the Internal Revenue Service by producing upon request records that have been retained. However, many domestic banks follow a practice of destroying records at the earliest possible date after they have met the needs of the bank and the bank's customers. Theoretically, the retention of extensive records of banking transactions would meet our needs. Realistically, however, the creation of a mass of paper beyond our capacity to digest and utilize could have the effect of submerging and making unobtainable information of special interest to us. In other words, a rifle rather than a shotgun may represent the best approach to the problem. We recognize also that extensive recordkeeping and reporting requirements on domestic financial transactions could impose a burden on banks that might be out of proportion to the revenue and other benefits realized. We feel that the subject needs to be reviewed very carefully and in detail to assure a reasonable accommodation of conflicting interests. In conclusion, viewed strictly from an enforcement standpoint, there is little question but that legislative assistance will be required to give us all of the tools necessary to deal with tax evasion utilizing foreign bank secrecy. I wish, however, to emphasize again our opinion that the problem deserves extensive further study in order to accomplish most effectively the objectives that are being sought. At the same time, I can assure this committee of a great interest on our part in the subject matter and the objectives sought by the committee, and our desire to cooperate fully in a continuing examination of the area. Thank you, Mr. Chairman. Chairman PATMAN. Thank you, sir. Mr. Thrower, your testimony is especially interesting to me. Has the United States ever had a policy of determining export of capital, how much is exported and who exported it in large sums? Have you ever known of a law that required an accounting of the export of capital? Our country is the only one in the world that I know of that does not have some kind of a law that would keep us advised as a Government of the export of capital. Have you ever known of a law that would require any part of that information? Mr. THROWER. Mr. Chairman, I do not know of a law of the sort that is now before the committee which would require reporting in the specifics Chairman PATMAN. This is the first time an attempt has been made to have some control over the export of capital; isn't that correct, especially as to currency and coins? Mr. THROWER. In terms of reporting of individual transactions on a basis available to the Internal Revenue Service, that certainly would be so. Chairman PATMAN. Would you like to comment, Mr. Rossides? Mr. ROSSIDES. Only to the extent, Mr. Chairman, that as I understand it, banks report currently on an aggregate basis, not on an individual basis just following what Commissioner Thrower pointed out regarding individual movements of capital, banks report to the Treasury capital flows on an aggregate basis. Chairman PATMAN. But not by name? Mr. ROSSIDES. Not by name. Chairman PATMAN. Yes. The Assistant Attorney General, and the U.S. attorney, in New York, Mr. Morgenthau, complained about banks changing their recordkeeping practices. They did receive considerable information in his department about what was going on in foreign countries about the misuse of capital and the evasion of taxes, but the last year or two the recordkeeping practices have been changed. Do you have any knowledge of that? Mr. ROSSIDES. Yes, Mr. Chairman. We have had discussions with the banks and have reviewed Mr. Morgenthau's testimony. There is a continuous review by banks and other business institutions of their recordkeeping practices and there have been changes which, as Mr. Morgenthau pointed out-and I believe Mr. Wilson would agree with me-make it more difficult for law enforcement. However, I want to be clear that they are just implementing these changes for that purpose. They are doing it for their normal business purposes Chairman PATMAN. I am not charging that; but isn't it a fact that it is much more difficult now than it was even a year ago or 2 years ago? Mr. ROSSIDES. I could not characterize the words "much more," Mr. Chairman. I would say "more" difficult. But that is the exact reason Chairman PATMAN. I am not saying the reason. I am just saying it is more difficult. Mr. ROSSIDES. Yes, sir. But my point was this is one of the reasons why when the Treasury became involved in these issues earlier this year, the more we got into them the more we realized that information was needed. There may be a procedure that we come up with which is easy for the banks and which actually may give us more information than we had a year ago. We do not know yet, sir. Chairman PATMAN. Now, you were kept advised, both of you gentlemen, about the preparation of this bill over a long period of time, isn't that correct? Mr. ROSSIDES. That is correct, Mr. Chairman. Chairman PATMAN. Isn't that correct, Mr. Thrower? Mr. THROWER. That is correct, Mr. Chairman. Yes. Chairman PATMAN. And we understood that you were supporting the bill. Of course, to state that you support the objectives, of course, that is in the right direction, but we thought that since you helped write the bill and you didn't bring up any of these objections, that you were supporting it. And I wish you would outline, each one of you, just the areas in which you do not agree. I don't believe you spell them out. Mr. ROSSIDES. Mr. Chairman, I think I did, with all due respect, raise certain aspects of the bill where we point out that they go too far. In other words, we support Chairman PATMAN. I know you used the phrase "go too far," but you didn't specifically mention the instances or the areas in which you said the bill goes too far, if I understand it correctly. Mr. ROSSIDES. Well, I think in the testimony some of it comes out, Mr. Chairman. You take the area of bank recordkeeping. We feel that this goes too far. You might have a mountain of paper which is of no use. We had meetings with certain members in the industry Chairman PATMAN. I know, but where you have microfilming, as you have had in the past, it was very helpful to the Department of Justice and they apprehended many people involving large amounts in fraudulent transactions. And then all at once they began to refuse to have those microfilms, and they began to destroy those records. Don't you think that some consideration should be given in certain cases where records must be maintained? Mr. ROSSIDES. We do, Mr. Chairman. Our question is: How much and for how long and in what form? And what we want to do is improve it. Let me be as firm as I can that one of the first things this administration did when it assumed office was look at the secrecy problem, Mr. Chairman. We favor the objective of the bill. We have a good, hard, and what I consider tough task force working on this problem. We are pushing hard on our treaty. Chairman PATMAN. How long have they been working on it? Mr. ROSSIDES. I would say since the spring regarding the treaty, Mr. Chairman, and on the bill since the late summer. Chairman PATMAN. Since late summer? Mr. ROSSIDES. And we feel that in the not-too-distant future, a few months, we will have our study completed Chairman PATMAN. And you will make a report? Mr. ROSSIDES (continuing). To come back and work closely with this committee. This committee has brought this problem to the fore from your hearings of last December. We are anxious to move ahead; no question about that. There are very serious, very subtle problems as well as obvious problems to be dealt with, but we feel that working closely together with the committee we can come up with measures that will overcome these problems. Chairman PATMAN. Well, we appreciate your help, and I notice what you said in your testimony about that. Do you know of instances where secret accounts in foreign banks have been used to get control of corporations in the United States? Mr. ROSSIDES. I have read the cases, Mr. Chairman, and some of the testimony of Mr. Morgenthau. So from that I do know. Chairman PATMAN. Yes. Mr. ROSSIDES. Those are more in the area of the SEC testimony. Chairman PATMAN. I know one of the finest companies in the United States-they produce clay pipe and things like that; we need it in cities and also in connection with housing--and all at once it was discovered by this concern that 10 percent of their stock had been acquired by a Swiss secret bank account. Of course, they were frantic about efforts being made by the person in charge of that account to get control of the whole company. Do you happen to know the company I am talking about? Chairman PATMAN. The Department of Justice went right to work and let them know that we knew what was happening and it would not be tolerated. The Department of Justice did a wonderful job. The person owning that account came to the United States and told the company: Now, here is the stock we have bought, 10 percent. Here is what we paid for it. If you want to pay us back our money, we will be out forever. We will never come back in here any more. And since we know of that case and some others, evidently there are many that we do not know of. Mr. ROSSIDES. I am convinced, Mr. Chairman, that in the area of securities laws violations this is a major problem, and I know you are looking forward to the testimony from the Securities and Exchange Commission. There is no question that the violations of our laws on disclosure, on antimanipulation, and on inside trading are quite harmful. The protection provided by these laws atrract foreign investments in U.S. securities, which is a help to our balance of payments. We feel that this is another reason why I can't stress enough to you, Mr. Chairman, and to the members, the seriousness with which the Treasury is approaching the problem of bank secrecy. Chairman PATMAN. Thank you very much, sir. Mr. Widnall. Mr. WIDNALL. Thank you, Mr. Chairman. Mr. Thrower, Mr. Rossides, and others on the panel, I think we are very grateful for your testimony here today, and you have made an outstanding contribution. As I understand it, you are both heartily endorsing the objectives of the bill, but you are trying your best to point up the difficulties in connection with not just the administration of it but in arriving at the right solution, and until you have had a chance to study it even more. I don't understand that you are trying to throw a protective cloak over anybody in this connection, but I think it is important that we do realize on the committee the extent to which commerce might be damaged if there is too much involved-too much paperwork and things like that. I know lots of people are complaining right now in my own constituency about the extent of Government paperwork they have to do, and the accountants they have to hire in order to just keep up with the paperwork. And this could undoubtedly be true in this case. I don't have any particular questions I would like to ask you. I hope that the results of the task force can be sent to the committee as soon as possible. And as I understand it, Mr. Rossides, you said you think in 2 to 3 months you will probably have the answer? Mr. ROSSIDES. We would hope, Congressman, 2 to 3 months. We are pushing on this. It is a priority item. The task force report will be made to the Secretary. I presume that it will be made available certainly to the committee. Mr. WIDNALL. Were you going to comment on that, Mr. Thrower? Mr. THROWER. Yes; I might supplement that, Mr. Widnall. We have undertaken to ascertain by inquiry of our field offices what the present practices of the banks are with respect to maintenance of records and the retention of records that they do maintain, and also to get an appraisal as to the extent to which this might be handicapping or prejudicing investigations at the current time. This will be appraised and evaluated as a part of this task force study. We certainly have not been idle, Mr. Chairman, but have been carefully studying this issue. Mr. WIDNALL. Would either of you have any records as to the number of banks or institutions that have been microfilming their records? Mr. THROWER. There are a combination of practices which I might describe for the benefit of the committee reported to us by our field offices to which we are giving attention. First, with respect to deposit slips or tickets. Many banks are now adopting the practice of returning original deposit tickets to their customers with monthly or periodic statements and canceled checks. In some instances a microfilm record of the deposit slip is not made, and in some cases the microfilm record is retained for a much shorter period than is necessary or would be helpful for our investigations. Records of deposits and withdrawals. Some banks microfilm all checks drawn on accounts of their customers as well as all checks on other banks cleared as transit items. Other banks microfilm only transit items. Present bank practices regarding the retention of microfilm records vary from a retention period of less than a year to more than 6 years. With respect to account ledgers and related records, with the introduction of data processing, the maintenance of individual account ledgers is being discontinued by some banks. The abbreviated retention periods that are bieng adopted by banks for tellers' proof tapes, bookkeepers' journals, daily trial balance printouts and microfilm records of customers' statements make it difficult or impossible to trace or identify deposit or withdrawal items. With respect to loan accounts, some banks make it a practice to dispose of installment loan ledgers and loan applications and financial statements as soon as the account is paid in full. Others dispose of these records whenever the account becomes inactive or within 1 or 2 years after it becomes inactive. |